NAM: Monday Economic Report
At the same time, the U.S. economy increased nonfarm payroll employment by 156,000 in August, which was lower than the consensus estimate of around 180,000. Unlike the manufacturing data described above, the nonfarm payroll data were revised lower in June and July, subtracting a total of 41,000 from those two months’ original estimates. The unemployment rate inched up from 4.3 percent in July to 4.4 percent in August. Despite the softer job growth in August, nonfarm payrolls have risen by an average of 175,625 per month year to date, which is a decent pace, and in general, we continue to see strength in the labor market.
There were also strong employment data in the latest ISM Manufacturing Purchasing Managers’ Index(PMI), which increased from 56.3 in July to 58.8 in August, its fastest pace since April 2011. Growth in hiring also increased at levels not seen in more than six years. In addition, the indices for new orders and production exceeded 60 for the third straight month (and seven of the past nine months), illustrating strong growth in demand and output in the sector overall. In contrast, one year ago, the manufacturing sector contracted slightly with the headline PMI at 49.4, and since then, we have seen tremendous progress. On the international front, exports pulled back a little in this report, but international sales continued to expand modestly overall, rising for the 18th consecutive month. In a similar way, manufacturing activity in the Dallas Federal Reserve Bank’s district also remained strong in August, with leaders very positive about sales and output for the next six months.
Meanwhile, real GDP grew an annualized 3.0 percent in the second quarter, revised up from an earlier estimate of 2.6 percent. This was also an improvement from the 1.2 percent growth rate in the first quarter. As a result, real GDP increased 2.1 percent at the annual rate in the first half of 2017. For the year as a whole, I am predicting real GDP growth of 2.2 percent, with 2.8 percent growth for the current third quarter. This is not far from the 2.1 percent average growth rate since the Great Recession, but I continue to believe there is upward potential in the forecast, especially for 2018, if pro-growth policies are enacted. The higher figure in this revision stemmed largely from stronger consumer and business spending than estimated in the advance release.
Along those lines, personal spending rose 0.3 percent in July, extending the 0.2 percent gains in both May and June. Since the spring, we have seen consumer spending pull back from robust growth, even as purchases continued to rise at a modest pace overall. In this report, personal spending increased 4.2 percent year-over-year, up from 4.1 percent in the prior release. To put that number in perspective, it was higher than the 3.8 percent year-over-year rate in July 2016 but off from the healthy 5.1 percent pace in March. The saving rate mirrored the recent acceleration in spending, falling from 4.1 percent in February to 3.5 percent in July. That was the lowest level so far in 2017. For comparison purposes, the saving rate was 5.1 percent one year ago. This is a sign that Americans have stepped up their purchases in general over the past 12 months.
This week, there will be just a handful of economic releases. The highlights include new data on factory orders and shipments, international trade, labor productivity and wholesale trade.